Pharma deals for May 2012

In this regular review of deals we focus on transactions announced during May 2012

Our analysis of deals this month illustrates the trend we have previously noted - there is a significant increase in the number of transactions focused on the acquisition of companies and product assets rather than on the classic licensing deal.

Interestingly it is also apparent that a bid to acquire does not necessarily translate into an automatic sale and target companies are “pushing back” on approaches from large pharma. Amongst the notable examples of these tactics are Human Genome Sciences' (HGS) rebuttal of GSK's recent $2.6bn offer and Illumina's rejection of Roche's enhanced $6.8bn takeover bid earlier this year.

Share price premiumsIn our overall analysis of deals signed last year, we noted that the average share price premium paid in 15 acquisition deals, excluding the huge Gilead-Pharmasset deal, was 42 per cent. Most of the 15 deals were for profitable companies. Gilead paid an eye-watering 89 per cent share price premium for Pharmasset, a company without any products on the market. Is this level of share price premium likely to become the norm and is this sustainable? It will depend on the perceived future value of the target company, its product portfolio and pipeline, as well as the level of competition in bidding for that company.

Roche's enhanced offer for Illumina represented an 88 per cent premium over the closing stock price the day before market rumours about a bid sent Illumina's stock price significantly higher. Roche abandoned its bid in the face of opposition from the Illumina board, so it looks like Illumina will not be sold, for the time being at least.

GSK's $13 per share offer for HGS represented an 81 per cent premium over HGS' share price on the last trading day before the offer was announced. GSK's bid for HGS is perhaps not a surprise. The companies have been long term partners for Benlysta (belimumab), an antibody approved for the treatment of systemic lupus erythematosus. They also have a partnership for two further drug development programmes: darapladib, a phase III small molecule drug for the treatment of cardiovascular disease and albiglutide, an albumin-fusion protein in phase III for the treatment of type 2 diabetes. Both these products are being developed by GSK with milestone payments and royalties due to HGS. GSK has just extended its offer to acquire HGS, although the price remains the same.

Another company that rebutted a large pharma offer recently is Amylin. Bristol-Myers Squibb (BMS) reportedly made an unsolicited $3.5bn takeover bid for Amylin earlier in the year, which represented a 43 per cent premium on the share price. As a result, Amylin decided to put itself up for sale. The process is ongoing with many rumours in the press about which companies are interested. It is no surprise to see all the large pharma with diabetes franchises being mentioned in the press. Apparently Amylin is now preparing for second round bids with offers valuing the company in the $4.1bn to $4.7bn range, a significant mark up on the initial BMS bid. With second bids requested by the end of June, there should be news on the successful acquirer by mid-July.

Dermatology remains a target In the table of top deals announced during May, both company and product acquisitions are a key feature. It is interesting to see that as we predicted last June, the part of Nycomed that was not acquired by Takeda last year, namely the US-based dermatology business called Fougera Pharmaceuticals, has been sold to Sandoz, the generics arm of Novartis. The all cash payment of $1.5bn represents a multiple of 8.8 times Fougera's 2011 earnings before interest, taxes, depreciation, and amortization (EBITDA) of $173m and makes Sandoz the world's number one generic dermatology company.

Two further dermatology deals appear in this month's table. Valeant is acquiring a number of products from University Medical Pharmaceuticals Corporation including AcneFree, an OTC acne treatment, for about $64m in addition to certain milestones based on future revenue. The revenues from these assets were about $32m in 2011. Valeant continues to build a significant dermatology portfolio through both acquisitions and internal growth and this deal adds to the dermatology capabilities that the company acquired last year.

At the end of the month, GSK's Stiefel announced that it is planning to acquire Welichem Biotech's WBI-1001, a non-steroidal, anti-inflammatory drug in phase II development for psoriasis and atopic dermatitis. The upfront payment of $34m gives Stiefel rights to the compound globally outside China, Taiwan, Macao and Hong Kong. Welichem is also eligible to receive further clinical and regulatory milestone payments as the product progresses. As part of this deal Stiefel has a conditional right to acquire rights to WBI-1001 for the remaining territories for an additional $14.5m.

Acquire or license?On the theme of product acquisitions noted above, there are two further examples in this month's deal summary table. It is interesting to see acquisitions of clinical stage products rather than perhaps more conventional licensing arrangements. A deal in which the acquirer pays all, or the majority, of the consideration up-front, as opposed to paying tranches downstream based on successfully meeting specific milestones, can be a risky strategy.

However, for the acquirer, taking that risk may pay off in that a cash payment now may be more cost effective than having to pay large milestones later in clinical development plus having a royalty drag on net sales.

For $110m cash, Abbott is acquiring Action Pharma's phase IIb stage hormone analogue AP214, which is being developed to prevent acute kidney injury associated with major cardiac surgery. The mechanism of action of AP214 is based on its ability to target both the systemic inflammation and cellular death that results from the lack of blood flow that can occur during surgery.

As often can be the case, another thread to this deal was Action Pharma's existing relationship with Zealand Pharma: AP214 was developed utilising technology Action had in-licensed from Zealand. In order to resolve ongoing obligations to Zealand, Abbott has entered into a separate agreement with Zealand and will make low single digit royalty payments to the biotech on future sales of AP214. However, other than the upfront payment of $110m, Abbott will make no milestone or royalty payments to Action Pharma and will take over all further development and commercialisation of AP214. In turn, Action will make a one-off payment of $11m to Zealand.

In this scenario, the willingness of the various parties to negotiate a solution to settle any ongoing obligations that may have been entered into many years before is crucial to the future success of the product. Sometimes the “unpicking” of the IP trail covering the key asset, and ensuring all the parties involved in this trail are rewarded proportionally and sensibly for their respective contribution to the asset, can be a huge challenge and is not always possible. This can effectively kill a deal and potentially the product.

Another example of a product acquisition is InterMune's sale of its approved product, Actimmune (interferon gamma-1b), to Vidara Therapeutics International for $55m in cash plus a two-year royalty stream. Approved for the treatment of two life-threatening congenital diseases - chronic granulomatous disease and severe, malignant osteopetrosis - Actimmune had sales of $20m in 2011. It was first approved by the FDA in 1990. The sale allows InterMune to focus its business on the rest of its portfolio.

Emerging marketsFollowing the theme of previous Deal Watches in the emerging markets space, both Takeda and UCB are strengthening their presence in Brazil. Takeda is acquiring Multilab Indústria e Comércio de Produtos Farmacêuticos Ltda for $266m, including up to $20m in future milestone payments. Amongst Multilab's leading products is Brazil's best selling OTC cold and flu treatment, Multigrip. The company's reported annual net revenue for 2011 was approximately $75mn. One of the attractive features for Takeda is Multilab's existing distribution network through regional wholesalers and small to mid-sized independent pharmacies, especially in the emerging areas of Brazil.

UCB is acquiring a 51 per cent stake in privately-owned Meizler Biopharma in Brazil with the option to acquire the remaining 49 per cent; no financial terms have been disclosed. With sales of around $45m last year, Meizler markets a diverse range of in-licensed products from numerous global partners covering indications from oncology to anti-infectives.

Research collaborations and consortiaAn interesting trend noted this month is the number of large pharma academic collaborations and research consortia that were announced. GSK and Daiichi Sankyo entered into discovery research collaborations with Yale University and the Japanese National Cancer Centre, respectively. The GSK-Yale alliance focuses on a specific and interesting class of molecules called proteolysis targeting chimeric molecules, which they will use to design protein degrading drugs that could have potential in multiple disease indications.

BMS has entered into two collaborations in oncology and immunoscience: one called the International Immuno-Oncology Network (II-ON) comprising ten leading cancer institutions and the other with Tsinghua University in China.

A further consortium with $285m of funding and focused on discovering new antibiotics has been set up in Europe. This public-private initiative includes GSK, Sanofi, AstraZeneca, J&J and Basilea together with the Innovative Medicines Initiative and will provide a vehicle for funding research and pooling resources and data with the objective of finding new antibiotics.

It seems that large pharma's need for novel compounds is driving them to search not only beyond the biotech community but also to pool resources with their competitors.

The AuthorJill Ogden has over 25 years' commercial and R&D experience in the biopharmaceuticals and healthcare industries and provides our biologics and drug delivery expertise. She has led and been involved in a wide range of product and technology deals and corporate transactions.